Credit-Default Swap Settlement Approved

(CN) – A federal judge on Thursday approved a historic $1.86 billion settlement of claims that 12 banks colluded to obfuscate the credit-default-swap market. U.S. Judge Denise Cote’s preliminary stamp of approval comes nearly a full month after class counsel announced the massive deal with Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan Chase, Morgan Stanley, Royal Bank of Scotland and UBS. Quinn Emanuel Urquhart & Sullivan and Pearson, Simon & Warshaw represented 10 plaintiffs led by a Los Angeles retirement fund that accused the banks of conspiring to prevent exchange trading of credit default swaps “at secret meetings and through telephone and email communications.” As further alleged, the banks agreed to work only with the single clearinghouse they controlled and imposed rules to restrict trading to their own benefit. Investigations by the U.S. Justice Department and the European Commission ensued when The New York Times blew the lid on the secret meetings in 2010. Cote rejected an attempt by the banks to dismiss the lawsuit last year. Though the banks claimed that their behavior was “self-interested conduct in reaction to the global financial crisis,” Cote was skeptical. “The financial crisis hardly explains the alleged secret meetings and coordinated actions,” she wrote. Class members include people or companies that purchased CDS from or sold CDS to any of the banks between Jan. 1, 2008, and Sept. 25, 2015, the signed settlement states. In addition to the payout of more than $1.86 billion, the International Swaps and Derivatives Association will create a new licensing subcommittee to approve buy-and-sell firms, the notice states. Applicants who are denied must be allowed to modify their application, and disputes will be handled by a third party. Before the settlement is finalized, Judge Cote said her Manhattan court will first hold a fairness hearing on April 15, 2016. The settlement contains the disclaimer that the “defendants deny they did anything wrong.”